Failing to learn from the debt crisis

Will Americans finally realize that their era of hegemony is over? asked the Chinese Xinhua News Agency in an editorial. “Since the collapse of the Soviet Union, the United States, as the world’s sole superpower, has relied on its powerful military to meddle everywhere in international affairs.” It spent heedlessly on its military, borrowing money to prosecute two wars, in Iraq and Afghanistan. Even as it faced a near-default on its massive debt, it was still sending its military into a new adventure in Libya. “Now is the right time for the United States, trapped in economic hardship, to reflect on its domineering thinking and deeds.” It’s time to “change the policy of interference abroad”—if for no other reason than that the U.S. simply can’t afford it.

Yet the policymakers in Washington have yet to “show some sense of responsibility,” said another Xinhua editorial. Rather than fixing their fiscal problems, they “keep robbing Peter to pay Paul.” Now that Standard & Poor’s has downgraded the U.S. credit rating, government authorities will likely be tempted to let the dollar weaken, boosting American exports at the expense of lowering the value of Beijing’s holdings of dollar assets. We hope they do not choose such a selfish and unwise course. As the printer of the international reserve currency, the U.S. “has the responsibility to assure the value of other countries’ foreign reserve assets.” If it fails to do so, “how can the creditors keep lending?”

The problem is the U.S. political system, said Xie Tao in the Economic Observer. The separation of powers in the U.S. means that the president can be from one party while the Congress is from another, and the result is gridlock. Even worse, though, is the frequency of legislative elections. Members of Congress are always trying to please voters so they’ll be re-elected, “and the most important means is through pork barreling.” They direct funds to pet projects in their own districts, and when this happens year after year, it all adds up to an unsustainable debt for the U.S. government.

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For now, China has “no choice” but to continue to hold Treasury bonds, said Li Xiangyang in the People’s Daily. Our two economies are too closely bound together for any hasty extraction to be prudent. But in the long term, it’s simply no longer a good bet to rely on the U.S. The American political parties’ willingness to come so close to default “is a warning to China that the United States will ignore the interests of creditors for the sake of domestic political battles.” It’s time to find an alternative to “today’s dollar-centered global monetary system.”